Question

If the reserve requirement is 20% and commercial bankers decide to hold additional excess reserves equal to 5% of any newly acquired checkable deposits, then the effective monetary multiplier for the banking system will be

Answer 1

Answer: 4

Step-by-step explanation:

Based on the information provided in the question, the effective monetary multiplier for the banking system will be calculated as:

= 1/Reserve ratio

= 1 / (20 + 5%)

=1/(0.20+0.05)

= 1/0.25

= 4

Therefore, the effective monetary multiplier for the banking system is 4.